SIC 3661
TELEPHONE AND TELEGRAPH APPARATUS

This industry covers establishments primarily engaged in manufacturing
wire telephone and telegraph equipment. Included are establishments
manufacturing modems and other telephone and telegraph interface
equipment. Establishments primarily engaged in manufacturing cellular
radio telephones are classified in
SIC 3663: Radio and Television Broadcasting and Communications
Equipment.

NAICS Code(s)

334220 (Radio and Television Broadcasting and Wireless Communications
Equipment Manufacturing)

Industry Snapshot

While the telecommunications equipment manufacturing industry was strong
and growing during the late 1990s, by the early 2000s conditions had
worsened. Ambitious infrastructure build-outs during the prosperous 1990s
were not met with anticipated demand. For telecommunication service
providers, this situation led to overcapacity and high levels of debt. By
2003 a number of providers had declared bankruptcy or were in poor
financial shape. Subsequently, capital investment fell considerably, which
was bad news for telecommunications equipment companies. According to
The Economist
, in late 2002 investment bank Morgan Stanley indicated that capital
spending might decrease as much as 34 percent for the entire year. Coupled
with an already weak economic climate, this trend led to downsizing and
cutbacks among industry leaders. For example,
Telephony
reported that Lucent Technologies, Inc. had reduced its workforce by
50,000 as of August 2002 and that an additional 6,000 cuts were planned.
These bleak conditions had a negative impact on industry revenues. The
Telecommunications Industry Association (TIA) reported that, in 2001, the
industry as a whole saw revenues fall for the first time in a decade. For
the equipment sector, this drop resulted in a 2.8 percent decline, with
2001 revenues reaching $166.7 billion.

By the late 1990s the industry began changing in response to advances in
technology and in the deregulation of the telecom services industry. The
shift from analog transmission to digital was virtually complete and the
next phase in the evolution of communication networks, the shift from
separate networks for voice and data to a single network for both, was
underway. This change prompted the leading companies in the industry,
formerly focused on only one kind of network, to move to establish
themselves as capable for the coming converged network. However, by 2003
the movement toward "convergence" had not materialized as
expected. Within the corporate sector, instead of investing in new
infrastructures, many firms remained content with their traditional
networks, which affordably met their needs. In these years, the
deregulation of the telecommunications services industry enabled service
giants such as AT&T to diversify their offerings, which expanded
the market for equipment. Moreover, the explosive growth of the Internet
created demand for further advances in equipment.

Organization and Structure

The telephone and telegraph equipment manufacturing industry can be
divided into two broad categories: service carrier network equipment
manufacturers, which sell telephone switching and switchboard equipment
primarily to local and long distance phone companies; and end-user or
enterprise equipment manufacturers, which
sell data and voice communications equipment, facsimile equipment,
call/voice processing equipment, consumer communications electronics,
private branch exchanges (PBX), and videoconferencing equipment to both
businesses and residential users alike. By the end of the 1990s, however,
significant changes were taking place in the telecommunications industry
that tended to blur such distinctions. Technological changes made possible
the convergence of voice communication networks and data networks. In
addition, some consolidation was taking place as industry leaders acquired
or established partnerships with smaller companies that had particular
technological or marketing strengths. The result was that the industry
leaders began manufacturing equipment for all segments of the
telecommunications market. Small start-up companies, created around a
particular advance in technology, were also an important part of the
industry because they were the source of important innovation. Such
companies were often the targets of acquisition by a larger company in the
industry.

Background and Development

American Samuel F. B. Morse introduced the first commercially successful
telegraph in 1844. "What hath God wrought?" was the first
message to be transmitted on the 37-mile pole line between Baltimore,
Maryland, and Washington, D.C. Under Morse licenses, open-wire pole lines
were soon erected all over the United States and Canada.

Alexander Graham Bell patented the telephone in 1876, beating Elisha Gray
by a matter of hours. The technology was immediately put to use in
telephone systems by the National Bell Telephone Company (originally the
Bell Telephone Company). Western Union Telegraph Company also began
offering phone service, using technology developed partly by Gray and
Thomas Edison. But as a result of an out-of-court settlement in a patent
dispute, Western Union sold its phone operations to Bell in 1879. Bell
also purchased its manufacturing arm, which became the Western Electric
Company.

Bell's phone service was immediately popular. By March of 1880,
there were over 30,000 U.S. telephone subscribers and 138 telephone
exchanges. By 1887, just ten years after the commercial introduction of
the telephone, there were over 150,000 subscribers and about 146,000 miles
of wire. In addition, nearly 100,000 people had phone service in Europe
and Russia.

Developments in the switching equipment were necessary to make this growth
possible. The first switchboard was installed in Boston in 1877. Before,
this date one telephone had to be directly connected to another in order
to make a call; 1,000 connections were necessary for 50 telephones to call
each other. In 1891, American Almon B. Strowger patented the first
automatic switchboard. As telephone services proliferated, a demand for
long-distance services arose, and Bell established the American Telephone
and Telegraph Company in 1885 as its long-distance subsidiary. Important
equipment and wire advances allowed commercial service to be implemented
between Boston, Massachusetts, and Providence, Rhode Island, by the 1890s.
Distances gradually increased with the introduction of new equipment, such
as relays, loading coils, amplifiers, and repeaters. Radiotelephone
service to Europe was established in 1927, but large-scale wire-line
telecommunications were not available until 1956 when the first
transatlantic cable was completed.

Broad patent rights enabled the National Bell Telephone Company, which
became the American Bell Telephone Company in 1878, to completely dominate
the telephone service and equipment industry. Bell built a nationwide
network by licensing local operating companies to deliver service for five
to ten years. Bell received $20 per phone each year and reserved the right
to buy the local network at contract expiration. Although Bell's
patent rights terminated in 1894, only a few independent companies emerged
as competitors. By 1899, Bell maintained a network of 800,000 lines.

AT&T became the parent company of the Bell system in 1899 and grew
steadily through the first half of the century. Demand surged during the
1950s and 1960s, with an influx of new products, services, and
technological breakthroughs. Despite pressure by anti-trust regulators to
cede its market dominance, AT&T continued to grow during the 1960s
and 1970s, becoming the largest company in the world. In 1974, however,
anti-trust suits filed separately by MCI (now MCI WorldCom) and the
Justice Department signaled an end to the company's unfettered
reign. Ten years later the monopoly was finally broken when AT&T
was divided into eight pieces.

Prior to the 1980s, business telecommunications were more or less a
straightforward matter. Services were provided by AT&T with its
undisputed monopoly as the carrier of voice, data, and text
communications. Large business users had private branch exchanges (PBXs),
for internal and external voice traffic, telex machines for instantaneous
transmission of text, and dedicated data lines for communications with
mainframe computers. Small businesses used key telephone systems and
facsimile machines.

Progress in microelectronics and the deregulation of the
telecommunications structure in the United States changed all that. The
boundaries between computing and telecommunications became blurred. With
the advent of the Integrated Service Digital Network (ISDN), the
telecommunications network no longer had to separate voice, text, data,
and image traffic. Everything could go over the wire or fiber optic cable
in bits. There could be a uniform ISDN plug for telephones, computers, and
fax machines.
Personal computers not only became more powerful, they also had the
potential to double as telex and data communications terminals, as fax
machines, and as telephones and telephone answering machines. Electronic
data interchange (EDI) could eventually do away with forms completed in
duplicate and triplicate. Videophones would bring the person at the other
end of the line right into the office.

Changes in telecommunications regulations since the early 1980s also
transformed the way telecommunications developed. Competition in network
provision improved the quality of traditional services. Waiting lists for
business and residential voice and data lines fell dramatically.
Telecommunication and equipment prices also declined. New
telecommunication-based services sprang up, bringing revenue not only to
telecommunication operators and the information providers, but also
generally enhancing the value of business operations. Even domestic users
with touch-tone telephones were beginning to avail themselves of
network-based facilities that ten years ago only users with sophisticated
communications equipment could afford.

Central Office Switching Systems.
When large scale integrated circuits were perfected in the 1970s, it
became technically feasible to develop a digital-switching network to
replace the electronic network in central offices. Modern central office
technology had a digital switching network controlled by a programmable
central processor. Switching systems routed calls between themselves and
selected terminating stations by addressing. Station addresses in the
United States consisted of a three-digit area code and a seven-digit
telephone number. From overseas locations, a country code was added.

Centrex.
Before the arrival of microelectronics and PBXs, large companies were
reluctant to place switching systems on the premises to provide private
branch exchange service. Centrex was a PBX-like service furnished by the
local telephone company through equipment located in the central office.
Centrex features allowed direct inward dialing (DID) to a telephone number
and direct outward dialing (DOD) from a number without operator
intervention. For calls into the Centrex, the service was equivalent to
individual line service. Outgoing calls differed from individual line
service only in the requirement that the caller dial an individual access
code (usually 9). Calls between stations in the Centrex group required
four or five digits instead of the seven digits required for ordinary
calls. An attendant position located on the customer's premises was
linked to the central office over a separate circuit. Centrex service
provided PBX features without locating a switching system on the
user's premises.

Customer Premise Equipment.
In the early 2000s, this category included all the equipment that made up
the customer's network, which might be as simple as a telephone
handset or as complicated as a network of thousands of phones, computers,
fax machines, and other terminal equipment as well as all the wires,
cables, routers and switches that connect them.

Key Telephone Systems.
Key Telephone Systems (KTS) were not high-technology products compared to
radio, satellite, and fiber optics, and they did not have the technical
appeal of a PBX, but they were the workhorses of American business. Like
other customer premise products, KTSs evolved from wired logic and
electromechanical operation to stored program or firmware control. In the
process, they adopted many features that were once the exclusive province
of PBX. The Electronic Key Telephone System offered most of the features
of a PBX, especially the hybrid version, which was a cross between a PBX
and a Key System. The distinction between the KTSs and PBXs became more
blurred as technology brought more intelligence to the KTS. Further
blurring the trend between Key Systems and PBXs was the propensity of some
manufacturers to make Key Telephone instrument lines compatible with PBX
lines, allowing a company to grow out of its KTS and into a larger more
sophisticated PBX.

Private Branch Exchanges.
In the early 200s, many organizations operated private telecommunications
systems. These systems ranged in size from the federal telephone system,
which was larger than the telecommunications systems in many countries, to
small private branch exchanges (PBXs). Nearly every business with more
than 30 to 100 stations was in the market for a PBX or its central office
counterpart, Centrex. PBXs were economical for some very small businesses
in need of features that most key systems did not provide, such as
restriction and least cost routing. They were also economical for very
large businesses that had PBXs using central office switching systems of a
size that rivals many metropolitan public networks. Most PBXs could be
mounted in a cabinet on the business user's premises and could
operate without air conditioning in an ordinary office environment.

The office PBX increasingly controlled private voice networks. As the
network evolved into all digital, so did the PBX in all but the low end
systems of 100 stations or fewer, which remain analog. The advent of the
T-1 carrier as the preferred transmission medium was the principle force
driving the evolution of the PBX. The long distance carriers made it
increasingly attractive for business users to bypass the local central
office with T-1 trunks directly to the long distance carrier's
central office. The cost of T-1 service for PBX lines was particularly
advantageous when data transmission facilities paralleled the route of
voice. The integration of voice and data reduced the cost of access lines
to the outside world.

Call/Voice Processing Equipment.
Several converging forces had increased the importance of incoming call
management systems. First, there was the increasing use of telemarketing.
A telemarketing center typically had banks of 800-numbers with different
numbers associated with different product lines or promotions and
different agents with access to various databases to handle
callers' questions. A caller distribution system was needed in this
case to direct incoming calls to the appropriate agent. Second, most
incoming 800-calls were delivered via T-1 technology. With this
technology, calls needed to be routed to the appropriate party when they
reached the customer premise. Finally, call distribution technology had
advanced to the point where it was basically a merger of telephone and
computer operations. Any organization with more than a few answering
positions found that the cost of some machine-controlled call distribution
paid for itself quickly.

A uniform call distribution system (UCD), a standard feature of many PBXs,
often significantly improved call handling. The stand-alone counterpart of
a UCD was the call sequencer. This device might work with a PBX or key
telephone system, or it might be connected directly to incoming lines.
Unlike the UCD, a call sequencer did not direct calls, but it alerted
agents to the presence of incoming calls. The most sophisticated device
was an automatic call distributor (ACD), which could either stand alone or
integrate with a PBX. An ACD directed calls to the least busy agent to
equalize the workload. The ACD administrator typically had a video display
terminal that presented call statistics in real time and had many
management tools that monitored and improved service and measured
agents' effectiveness. Any organization that had a large number of
incoming calls targeted for service positions was a potential ACD user.
This included departments that handled mail orders, literary delivery,
inquiries, field service, credit, and collections.

Modems.
Like other types of telecommunications equipment, modems became faster,
cheaper, and smarter. The ready availability of inexpensive personal
computers expanded the demand for modems, and in the early 2000s basically
two types of modems existed in the market: dial-up modems and private line
modems. Dial-up modems either plugged into a personal computer slot or
were self-contained devices that plugged into the computer's serial
port. Many of the modem's features were designed to emulate a
telephone. These features included: dial tone recognition, automatic tone
and pulse dialing, monitoring call progress tones such as busy and
reorder, automatic answer, and call termination. These items were priced
on a commodity type basis and used the public network for the transmission
of information. Private line modems worked exclusively with voice and data
private lines, and although they had the same functions as a dial-up
modem, they were not as popular.

At the beginning of the twenty-first century, many data applications, by
nature, were incapable of fully using a data circuit. Rather than flowing
in a steady stream, data usually flowed in short bursts with idle periods
intervening. To make use of this idle capacity, data multiplexers were
employed to collect data from multiple stations and create a single,
high-speed bit stream. Data multiplexers came in two types: time division
multiplexers (TDM) and statistical multiplexers (statmux). In a TDM, each
station was assigned a time slot, and the multiplexer collected data from
each station in turn. If a station had no data to send, its time slot went
unused. A statmux made use of the idle time periods in a data circuit by
assigning time slots to pairs of stations according to the amount of
traffic they had to send. The multiplexer collected data from the terminal
and sent it to the distant end, with the address of the receiving terminal
minimizing idle times between transactions.

Analog or frequency division multiplexers were also available to divide a
voice channel into multiple segments for data transmission. Their primary
use was to connect multiple, slow-speed data terminals over voice
channels. A concentrator was similar to a multiplexer except that it was
usually a single-ended device that connected directly to a host computer.
The primary application for multiplexers was in data networks that used
asynchronous terminals. Since many of these items could not be addressed
and had no error correction capability, they were of limited use by
themselves in remote locations. The multiplexer provided end-to-end error
checking and correction and circuit sharing to support multiple terminals.

Facsimile Equipment.
In the 1990s facsimile equipment (FAX) became an indispensable business
machine essential to the every day transactions of most businesses. The
FAX machine worked by scanning the printed page, encoding it, and
transmitting a facsimile of the images in shades of black and white
without identifying individual characters. Facsimile could convey both
text and graphic information, source documents could be retransmitted
without rekeying, and facsimile transmission was affected less by
transmission errors than other types of data communication. Facsimile was
also fast. Some facsimile machines doubled as printers and copiers.

Telephones.
The market offered two categories of telephone sets: general purpose sets
or corded phones and special purpose telephones, such as coin operated
telephones. The price of general-purpose sets was often a clue to quality.
Many inexpensive instruments provided poor transmission quality and failed
when dropped. At the high end of the scale, price usually was a function
of features or looks. Single-line phone sets were being replaced by
feature phones with many more characteristics and capabilities than
existing models. In the late 1990s,
cordless telephones gained wide consumer acceptance with an estimated 40
percent household penetration in the United States. These instruments used
a low-powered radio link between a base unit and the portable telephone.
Answering machines were still popular home equipment, but technological
innovation was replacing the traditional stand-alone telephone answering
machine connected to a telephone with integrated telephone answering
devices. These units included telephone-answering devices incorporated
into every piece of communications equipment from basic telephones to
cordless integrated answering telephone devices and personal computer
systems.

Coin Telephones.
The advent of the customer-owned coin operated telephone (COCOT) was
another byproduct of divestiture that was confusing to many users. In the
first few years following the dissolution of the Bell System, many private
companies saw COCOTs as a potentially lucrative business. The companies
that ventured into this market with less than adequate equipment, however,
quickly discovered what the local exchange companies (LECs) had long
understood: the risks and administrative costs of coin telephones were
high, and the companies that entered this market without understanding the
hazards could lose large amounts. The two major risks were fraud and
vandalism.

Convergence.
A major development at the end of the 1990s was the growing convergence
of voice and data networks. Advances in technology, of which ISDN was the
first evidence, created the possibility for voice traffic to be
inexpensively carried over data networks. A standard voice network was
circuit-switched, meaning a circuit was established and dedicated to the
call as long as it lasts. A data network, on the other hand, was
packet-switched, meaning the data were bundled into packets that were
transmitted separately, which enabled the system to eliminate silence in
the transmission and allowed great flexibility in routing the information.
As a result, as many as five to eight simultaneous Internet Protocol (IP)
connections could be established on every traditional telephone circuit. A
major issue in sending voice over data in 1999 was the voice quality
provided by the system, but rapid improvement had been made and was
expected to continue. Furthermore, not all customers required the same
voice quality.

Deploying one network to handle voice, data traffic, and Internet access
had great appeal, although companies with an extensive pre-existing
infrastructure did not rush to replace it. According to a 1999 study by
Information Week Research, 72 percent of companies operated separate
networks for voice, data, and video while 19 percent had a single network
combining voice and data. Only nine percent had a fully converged network
for voice, data, and video. However, 23 percent of the companies contacted
for this study said they planned to use a single network for all three
types of traffic within twelve months. A study by Phillips Group-InfoTech
reported that nearly 90 percent of companies with multiple sites would
begin switching to voice traffic using Internet Protocol over their local
area networks (LANs). This report predicted an average growth in this
segment of the industry of 138 percent each year for the five years after
1998, creating a $1.9 billion industry by 2004. The Yankee Group, another
marketing research organization, was even more optimistic, projecting a
voice- and fax-over IP services market of $3.6 billion in 2002.

Accompanying the convergence of voice and data was the development of
alternatives to the traditional PBX, called PC-PBXs. Instead of using what
in effect was a custom-built computer that required custom software and
could only be used with specific peripheral equipment and enhancements,
PC-PBXs were designed to be regular PC servers. This more open approach
allowed for greater flexibility and potentially lower costs. One factor
slowing this innovation was the pace of development of accepted standards.
A greater problem was the issue of reliability. Telephone customers,
especially business customers, were accustomed to "five
nine" reliability, that is, 99.999 percent uptime. Such capability
had been developed over decades of refinement of PBX technology, but the
new PC-based alternatives had not yet reached that level. At the end of
the 1990s, the new systems were being aimed at small and mid-sized
organizations and branch offices of large organizations.

According to the Multimedia Association, a telecommunications industry
trade group, nearly 70 million PBX lines were in use in 1998. During that
year more than 7.5 million had been added, and more than $7.5 billion had
been spent on new PBX systems, a clear indication that the PBX was far
from dead. Nevertheless, according to a study by the marketing research
firm Data-quest, 11,503 PC-PBX systems were shipped in 1998, and 20,941
were projected for 1999. That number was expected to more than triple by
2002.

Bandwidth.
The phenomenal growth in the popularity and business importance of the
Internet contributed greatly to the continually growing demand for
bandwidth, that is, the volume of traffic carried at one time and the
speed at which it was transmitted. New technologies had been developed
that pushed ISDN, a technology never fully exploited in the United States,
into the background. The most common type of access used by business at
the end of the 1990s was called T1, which provided much greater bandwidth
than ISDN, though at a much higher cost. A newer technology, which
promised bandwidth equivalent to that of T1 but at a cost like that of
ISDN or lower, was Digital Subscriber Line (DSL). A number of variants of
DSL were being used in 1999, but set standards were being developed. ISDNs
still remained for customers that were
more than three miles from a telephone company's central office,
beyond the range of DSL.

Current Conditions

In 2001, the Telecommunications Industry Association (TIA) valued the U.S.
market for telecommunications equipment and software at $166.7 billion,
down 2.8 percent from the previous year. Voice and data equipment
accounted for most of this total ($98.0 billion), followed by network
equipment and facilities ($41.0 billion), wireless capital expenditures
($19.5 billion), and wireless handsets ($8.2 billion). Of these
categories, wireless capital expenditures (6.2 percent) and voice and data
equipment (1.2 percent) achieved growth in 2001, while network equipment
and supplies fell almost 14 percent and wireless handsets dropped more
than 6 percent. Although not as broad in scope, Value Line's
evaluation of the telecommunications equipment industry depicted how
revenues within the industry were falling by the early 2000s. Value Line
reported that, after climbing from $23.6 billion in 1999 to $27.9 billion
in 2000, industry sales fell to $20.6 billion in 2001 and were estimated
to fall to $17.0 billion in 2002 and $16.8 billion in 2003.

Although frequently discussed, by 2003 "convergence" had not
blossomed as the industry first expected. In fact, some observers
partially blamed the mad rush to develop Internet Protocol (IP)-based
networks—designed to carry applications, data, and video, as well
as traditional voice communications—for causing some of the
industry's woes. While the leading uses for IP-based networks were
data and long-distance voice services,
Network World
reported that such services represented only a small fraction of
telecommunication services spending overall. In addition, the publication
revealed that most companies were "sticking with their legacy data
networks even as they see significant growth and promise in their Internet
applications. This leaves the entire Internet industry—carriers,
equipment providers and software vendors—facing a slower transition
to IP services than was anticipated during the go-go years of the late
1990s."

According to
Network World
, along with audio, video, and data conferencing, unified messaging and
instant messaging were among the leading six IP-based services by early
2003. The publication cited findings from Insight Research that projected
sales of these services would rise from $695.0 million in 2002 to $11.4
billion by 2007. Because of slow adoption levels, spending on technology
to send voice communications via IP, known within the industry as Internet
telephony or VoIP, were estimated to fall from more than $8.1 billion in
2000 to $7.3 billion in 2002. However,
CED
purported that 2003 represented a critical year for such technology.
Comcast was expected to launch consumer VoIP services in Philadelphia
midway through the year. According to the publication, the success or
failure of the Comcast initiative would impact whether or not VoIP
flourished industry-wide in 2004.

Industry Leaders

Of the six leading telecommunications manufacturers in the world during
the early 2000s, two were U.S. companies—Lucent and Cisco. A third,
Canadian-owned Nortel Networks, did a significant share of business in the
United States. The remaining three were European—Alcatel, Siemens,
and Ericsson. Lucent and Nortel traditionally focused on equipment for
telephone systems while Cisco was the giant of the enterprise network and
Internet markets. The advancing convergence of voice and data networks,
however, and the explosive growth of data transmission, led all these
companies to develop products for the converged network, often by buying
companies with the products or expertise it lacked.

Lucent Technologies Inc. traced its roots to the very beginning of the
telecommunications industry as the manufacturing arm of first Western
Union and then the Bell system. The R & D unit, Bell Laboratories,
was credited with many technological advances, most importantly, the
transistor; its inventors received the Nobel Prize in 1956 for this
achievement. In 1996, AT&T spun Western Electric and Bell Labs off
as Lucent Technologies. In 1998, Lucent's market value surpassed
that of AT&T. In 2002 it reported revenue of $12.3 billion, down
more than 42 percent from the previous year. Lucent recorded a net loss of
$11.8 billion in 2002 and reduced its workforce by 39 percent.

Cisco Systems was the number one supplier of computer networking products,
with the majority of the market for routers and network switches. It also
was a growing force within the telephone industry. Its 2002 revenue was
about $18.9 billion, down more than 15 percent from the previous year. In
2002, the company employed approximately 36,000 workers.

Nortel Networks began life as the manufacturing arm of Bell Canada, but by
the 1950s a majority of its shares were owned by Western Electric, then a
subsidiary of AT&T. Bell Canada purchased most of those shares when
the U.S. Justice Department forced Western Electric to divest. Northern
Electric, as it was named then, was wholly owned by Bell Canada until
1973. In 1976 it changed its name to Northern Telecom, and in the same
year it introduced the first digital switch, which fired its growth into
the 1980s. The company went through hard times in the early 1990s,
including a loss of $900 million in 1993. In 1999 it changed its name to
Nortel Networks. In 2002 sales fell almost 40 percent, reaching $10.6
billion. The company reported a net loss of $3.6 billion
that year and reduced its workforce by more than 43 percent.

America and the World

Historically, the United States has been the leader in telecommunications
equipment technology and innovation. This factor was due primarily to the
monopoly that AT&T (the Bell System) had on the nation's
telephone system for the first 100 years of its existence. The breakup of
the Bell System in 1984 created a new playing field for telecommunication
equipment manufacturers worldwide. Since telephone technology is not
drastically different from computer technology, and many of the same
components and techniques are used in both, the race to compete in this
market became a global endeavor. This factor, coupled with the regulatory
barriers harnessing the former Bell Operating Companies, resulted in the
United States losing this 100-year advantage almost overnight.

Between 1983 and 1989, the United States export of telecommunication
equipment increased at a compound annual rate of 15 percent. During this
period, imports of telecommunication equipment grew by 30 percent. In
1989, the U.S. telecommunication equipment industry had a trade deficit of
$2.7 billion, which improved 15 percent in 1990 to $2.4 billion.
Low-technology terminal equipment (i.e., telephones) accounted for the
largest component of foreign imports. Foreign producers in the Far East
were able to capture this market through lower manufacturing costs. China,
Malaysia, and Thailand contributed the most to this market. The U.S.
Senate, in response to these developments, passed the Telecommunications
Equipment Research and Manufacturing Act of 1991 in an attempt to make the
market more competitive.

Although the United States was no longer the dominant manufacturer in the
telecommunications equipment market as it had been at one time, it
reestablished itself as an international force during the later 1990s.
Despite an enormous overall trade deficit with Japan and other Far Eastern
suppliers, the United States did not have a deficit in telecommunications
gear. In 1998, U.S. exports of telecommunications equipment totaled $20.7
billion, a drop of one percent from 1997 levels. On the other hand,
imports increased by 19 percent, to $17.9 billion. Canada and Mexico were
the dominant trading partners for both imports and exports.

According to the TIA, in 2001 telecommunications equipment exports totaled
$25.8 billion, down 7 percent from 2000. That year, Canada was the leading
international market, although very strong gains were made in China (46
percent) and Hong Kong (94 percent).
Electronic Business
reported that exports continued to deteriorate in 2002. When compared to
the same seven-month period in 2001, exports were down almost 25 percent
in the first half of 2002, totaling $13.2 billion. According to the TIA,
imports fell 9 percent in 2001, totaling $36.0 billion. Mexico surpassed
Canada as the nation's leading international supplier that year.
Electronic Business
indicated that imports were down in the first seven months of 2002,
totaling $16.2 billion.